Top PDF Proposed new lease standard -Do investors adjust for capitalized operating leases in their assessment on market value of equity?

Proposed new lease standard -Do investors adjust for capitalized operating leases in their assessment on market value of equity?

Proposed new lease standard -Do investors adjust for capitalized operating leases in their assessment on market value of equity?

One of the goals with the new exposure draft is to increase the comparability among companies. Since our results showed that investors do not already adjust for capitalized operating leases, the comparability is more likely to increase which in turn could increase the quality of accounting. 113 The increase is primarily due to the fact that companies no longer will account for similar leases differently and thereby not excluding operating leases from their balance sheet. The comments from investors on the proposed new lease standard indicated that many investors did not adjust for operating leases using a constructive capitalization model, which is in line with our results. This indicates that the implementation of new lease accounting regulations could improve the usefulness for the most important stakeholder according to IFRS, the investors. Even if the current regulation provides users with sufficient information to capitalize operating leases, the assumptions needed is time consuming and will differ among investors. Furthermore, some of the information needed is not publicly displayed. If the new exposure draft is released it will be easier for investors to assess the market value of equity since operating leases is already capitalized. Ensuring that the lease information is moved from disclosures to the financial statement will increase the usefulness for the user by preventing that the capitalized value of operating leases is unrecognized.
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A value relevance examination of the current leasing standard

A value relevance examination of the current leasing standard

This paper makes three contributions to the existing literature. First, it affirms that lease accounting under SFAS 13 is value relevant, equipping standard setters with empirical evidence of the current leasing standard as they reconsider lease accounting. Second, it documents that operating and capital leases are priced differently, assisting standard setters in crafting a new leasing standard. Specifically, requiring capitalization of all leases would result in a loss of information to investors if recognized lease amounts and the associated footnote disclosures were merely aggregated across all lease classifications. Third, this paper utilizes descriptive evidence on the magnitude of as-if capitalized operating lease debt to explain in part why firms appear underlevered. In particular, researchers have evaluated firms’ capital structures to assess if firms are more highly leveraged to enjoy the favorable tax benefits of debt as compared to equity (Graham 2000 among others). This paper raises the question whether all debt, of which operating leases comprise a sizable portion, has been accounted for in examining the relation between debt and marginal tax rates.
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Capital Leases vs. Operating Leases

Capital Leases vs. Operating Leases

In the wake of the prominent accounting scandals of the past several years, investors and standard setters are demanding increased corporate transparency. Nowhere is the demand for transparency more salient than with off-balance-sheet financing, of which lease accounting plays a major role. At the end of 2004, total rental commitments by U.S. firms from off-balance-sheet operating leases exceeded $1 trillion. As standard setters reconsider leases as part of their broad reexamination of off-balance-sheet financing, they do so without the benefit of empirical research documenting whether capital market participants find the current leasing standard value relevant. This paper examines whether as-if capitalized operating lease liabilities and capital lease liabilities are both relevant and sufficiently reliable to be priced and explores whether equity investors value operating and capital leases differently. The results are consistent with the market viewing both operating and capital leases as economic liabilities of the firm. However, the results also indicate that capital market participants price operating and capital lease liabilities differently, consistent with the bright-line tests of the current leasing standard identifying economic differences in operating and capital leases. Thus, continuing to require lease disclosures by different lease classifications would assure that equity investors will not suffer from a loss of value relevant information in the pricing of leases.
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The politics of consumption

The politics of consumption

engages the ways in which consumption has grown and radically transformed notions of individuality, community, and social relations [in the first place]’. Following such a call, this paper argues for the applicability of Zygmunt Bauman’s genealogy of ‘liquid’ times to the capturing of the tendencies of and tensions within the politics of ethical consumption. In doing so, it attempts to contribute to the crucial understanding of political expression and participation under neo-liberalism, a connection which has been theoretically attempted, yet not empirically grounded (cf. Gill and Scharff, 2011). Fair trade is a particularly prominent case for examination, as it is one of the oldest forms of ethical consumption which has demonstrated upward market growth and has captured the trust and engagement of a variety of local, national and international agents. The paper launches on two basic premises. Firstly, that there has been a reconfiguration of the political picture in the sense of the advocated decline of public institutions as well as trust and interest in publicly-oriented practices. One argument deriving from the fields of the social and political sciences has articulated concern about the decline of political participation and political engagement. Arguably, this has been evident in the official categorisations of public life (voting, partisanship, political behaviour) (cf. Falk, 2000). A dissimilar positioning has been keen on the exploration of cultural politics. This argument regards the quantification of political partaking through electoral ballots as a restricted point of analysis of the political mapping of the present. The second premise of this examination is, therefore, that civic life is considerably kneaded by contextual social, cultural and economic conditions (cf. Isin, 2008). The continuation of a debate on the interplay between politics and markets (Lindblom, 1977) is crucial to an understanding of contemporary civic life within this national context of ‘market-driven politics’ (Leys, 2001). An examination of these contexts and conditions needs to include the budding literature on the reconfiguration of the very notion of ‘citizenship’ pertaining to the rising significance of the civic agency of consumers (Trentmann, 2007). In this light, Bauman’s macroscopic theory of liquid modernity can be employed as a constructive frame for the delineation of issues around consumer politics and consumer citizenship in the landscape of fair trade consumption in the United Kingdom.
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Management Accounting and Costs Controlling in Oil Producing Companies: Historical Perspectives

Management Accounting and Costs Controlling in Oil Producing Companies: Historical Perspectives

System approach to creation of costs management accounting was used in oil producing companies of the USA. The works of Smith, C. and Brock, H. [9], Irving, R.,[8] Haynes, L.[11], Finnell, J. [12] were dedicated to the issues of costs accounting. In the beginning of the past century oil companies carried out analysis of productive and operating costs implying the preparation of a special form report with separating and monthly reporting of oil producing direct and indirect production costs. Direct costs included production costs on oil injection, boreholes cleaning and repair. Indirect ones included depreciation of land recourses designated for boreholes construction and depreciation of the boreholes as well. Apart from production costs there were defined operating costs: costs for maintenance of buildings, facilities, fire guard, office equipment and furniture, water supply system etc. In the process of the cost calculation for one barrel the indices of unit direct production, indirect production and operating costs are calculated separately. In 1930-40s these indices were already considered essential in the system of management accounting and controlling in oil producing company. Main designation principles of costs to direct or indirect ones were defined at that period. So the costs became direct in case they correspond to the following criteria: direct connection with production activity; production activity serves as basis of business (oil producing and realization); availability of personnel control, responsible for production activity. Availability of connection with production activity, herewith the lack of control on the part of personnel and some disintegration of activity indicated that the resources expressed in monetary terms and expendable for this activity were included to the indirect costs structure. Direct and indirect costs comprised the group of operating costs. In such a case a register of direct and indirect operating costs was kept. Considering that oil lands themselves served as key objects of management accounting and controlling, labor costs for oil regions (areas) directors were subject to distribution among them. Insurance costs were also considered as indirect operating costs, since they were not controlled by the production subdivisions of oil company. Structure of immediate direct costs of oil land consisted of the following: labor costs for farm bosses, bull gangs; roustabouts, operators, boreholes cleaning from sand, etc.
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The Equity Choice of Institutional Investors in China’s Market

The Equity Choice of Institutional Investors in China’s Market

0.192 in 2016). From the regression results of each variable, SIZE, LEV, EPS and ROE, those four variables are significant, except for OCF. As for OCF, it has low significance in both two years, and one-year correlation result is not in line with the expectations (showing as negative), indicating that the variable cannot explain the investor's shareholdings. I think the possible reason is that social security fund investors was more focusing on the company’s profitability and did not pay much attention on the cash flow in the past two years, because the value of operating cash flow is little, we can see that the mean value of OCF showing only 0.34 and the median value of 0.25 from the descriptive statistics.
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PRIVATE EQUITY INVESTORS IN THE GERMAN HEALTHCARE MARKET

PRIVATE EQUITY INVESTORS IN THE GERMAN HEALTHCARE MARKET

In Germany, the entitlement to provide health care services for Statutory Health Insurance-Patients (SHI-Patients) in the outpatient medical market is linked to certain conditions. The most important requirement is an accreditation with an SHI-Man- date. This SHI-Accreditation can be obtained by physicians and dentists directly, but also by so- called Medical Treatment Centers (“MVZ”), e.g. in the legal form of a Limited Liability Company (“GmbH”). However, these MVZ cannot be estab- lished by any groups of shareholders. Currently, shareholders of an MVZ-Holding can only be health care service providers, such as physicians, dentists and hospitals, as well as providers of non-medical dialysis services. Since 2015, Mono-MVZs specia- lized in one medical speciality (e.g. dental practice or opthalmology) can be established. This possibili- ty has led to an increase of 47% in the number of MVZs established between 2015 and 2018. Out of 3,173 MVZs registered in 2018, the largest share (42%) was owned by hospitals. Therefore, the es- tablishment of MVZs through acquisitions of accre- dited hospitals has become increasingly popular for Private Equity investors. To restrain the founding powers of accredited hospitals and hence of Priva- te Equity investors, the legislator responded with the “Terminservice- und Versorgungsgesetz” (“TSVG”) in May 2019. This legalisation has tighte- ned the conditions to establish MVZs, for accredi- ted hospitals with regard to dental MVZs and for providers of non-medical dialysis services with re- gard to services without medical reference to dialy- sis.
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Operating Leases and Credit Assessments

Operating Leases and Credit Assessments

Operating leases have grown significantly as a source of corporate financing over the last 30 years. Their off- balance sheet treatment, which may in part explain their popularity, raises concern that financial risk may be misjudged and capital misallocated. Prior research evidence on the above issue is mixed. To improve reporting transparency, regulators propose a new accounting concept, right of use, which will add the present value of most leases to the balance sheet. We examine the effect of operating leases on loan pricing by banks, a sophisticated financial statement user. Since leases are a potential debt substitute, we expect them to be important in our setting. With loan spreads as the dependent variable, we test the differential explanatory power and model fit of as-reported financial ratios versus financial ratios adjusted for the capitalization of operating leases. We find that lease-adjusted financial ratios better explain loan spreads, especially for larger lenders. Our results also suggest that retailer leases that are closer in substance to rental agreements than financed asset purchases are less relevant for credit risk assessments. Thus we conclude that banks not only price operating leases, on average, but also make distinctions about which leases should be priced. Second, we explore the role of credit rating agencies and confirm that credit ratings also reflect capitalized operating leases, and find support for an informational role for others’ credit assessments. However, unlike banks, rating agencies appear to capitalize all operating leases mechanically. Overall, our results suggest that banks and rating agencies adjust for the off-balance sheet presentation of operating leases and, at least in the case of banks, attempt to do so to reflect the underlying economics of the leases. This evidence lessens concern over the potential negative consequences of existing operating lease accounting and raises concern over proposed accounting that capitalizes all leases regardless of their economic characteristics.
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The joint FASB/IASB lease project: Summary of proposed changes and impact on Lessee financial statements: Working paper series--11-05

The joint FASB/IASB lease project: Summary of proposed changes and impact on Lessee financial statements: Working paper series--11-05

Consistent with current rules, the amount of the lease payments includes all fixed rentals payable to the lessor over the lease term. Residual value guarantees are also included in the lease payments as under current rules; however, they will be measured as the difference between the expected residual value and the guaranteed residual value. In a departure from current rules, amounts payable under variable rental arrangements will be included in the computation of lease payments. Variable payments based on an index or rate are measured using prevailing (spot) indices or rates at lease inception; those not based on an index or rate (e.g., those based on a percentage of sales) will be included if they meet a high threshold (the methodology of which is still under consideration by the Boards). Both contingent rentals and residual value guarantees are to be reassessed each year if any new circumstances indicate there is a material change in the obligation.
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Onshore Energy and Mineral Lease Management Interagency Standard Operating Procedures

Onshore Energy and Mineral Lease Management Interagency Standard Operating Procedures

(FOGRMA), ONRR enters into cooperative agreements with any State or Indian tribe to share certain information for oil and gas management on leases on Federal land within states and on Indian lands with the tribe that has jurisdiction of the lands. In entering into a “cooperative agreement or agreements with . . . [an] Indian tribe to share oil or gas royalty management information, to carry out inspections, auditing, investigation or enforcement (not including the collection of royalties, civil or criminal penalties or other payments) activities under this Act in cooperation with the Secretary, and to carry out any other activity described in section 108 of this Act, . . . The Secretary shall not enter into any such cooperative agreement with a State with respect to such activities on Indian lands, except with the permission of the Indian tribe involved. Except as provided in section 203, and pursuant to a cooperative agreement:
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Paper on the Accounting Advisory Forum - Accounting for lease contracts

Paper on the Accounting Advisory Forum - Accounting for lease contracts

Operatin~ Finance leases lease By lessor as an asset Asset as annuity-loan By lessee in the notes Assets capitalised in balance sheet at fair value purchase price calculation or value on[r]

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FINANCING    PRACTICES   IN   CORPORATE   FINANCE

FINANCING PRACTICES IN CORPORATE FINANCE

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value ( Damodaran, A.). Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

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Annual Report 2010/2011

Annual Report 2010/2011

Recognition and Measurement: NZ IAS 39 is being replaced through the following 3 main phases: Phase 1 Classifi cation and Measurement, Phase 2 Impairment Methodology, and Phase 3 Hedge Accounting. Phase 1 on the classifi cation and measurement of fi nancial assets has been completed and has been published in the new fi nancial instrument standard NZ IFRS 9. NZ IFRS9 uses a single approach to determine whether a fi nancial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its fi nancial instruments (its business model) and the contractual cash fl ow characteristics of the fi nancial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 30 June 2014. Buller District Council has not yet assessed the effect of the new standard and expects it will not be early adopted. • FRS-44 New Zealand Additional Disclosures and Amendments to NZ IFRS to harmonise with IFRS and Australian Accounting Standards (Harmonisation Amendments) – These were issued in May 2011 with the purpose of harmonising Australia and New Zealand’s accounting standards with source IFRS and to eliminate many of the differences between the accounting standards in each jurisdiction. The amendments must fi rst be adopted for the year ended 30 June 2012. Buller District Council has not yet assessed the effects of FRS-44 and the Harmonisation Amendments.
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Leveraged Buyouts and Private Equity

Leveraged Buyouts and Private Equity

The second key ingredient is leverage, i.e. the borrowing that is done in connection with the transaction. Leverage creates pressure on managers not to waste money, because they must make interest and principal payments. This pressure reduces the “free cash flow” problems described in Jensen (1986), in which management teams in mature industries with weak corporate governance had many ways in which they could dissipate these funds rather than returning them to investors. 4 On the flip side, if leverage is too high, the inflexibility of the required payments (as contrasted with the flexibility of payments to equity) raises the chances of costly financial distress. In the U.S. and many other countries, leverage also potentially increases firm value through the tax deductibility of interest. The value of this tax shield, however, is difficult to calculate because it requires assumptions of the tax advantage of debt (net of personal taxes), the expected permanence of the debt, and the riskiness of the tax shield.
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LEASING. Topics in Corporate Finance P A R T 8. HAVE YOU EVER FLOWN on GE Airlines? Probably LEARNING OBJECTIVES

LEASING. Topics in Corporate Finance P A R T 8. HAVE YOU EVER FLOWN on GE Airlines? Probably LEARNING OBJECTIVES

Having said this, we should add that it may be the case that a fi rm (particularly a small one) simply cannot obtain debt fi nancing because, for example, additional debt would vio- late a loan agreement. Operating leases frequently don’t count as debt, so they may be the only source of fi nancing available. In such cases, it isn’t lease or buy—it’s lease or die! Low Cost Unscrupulous lessors can encourage lessees to base leasing decisions on the “interest rate” implied by the lease payments, which is often called the implicit or effective rate . As we discussed earlier under potential pitfalls, this rate is not meaningful in leasing decisions, and it also has no legal meaning.
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The Growing Importance and Value Implications of Recreational Hunting Leases to Agricultural Land Investors in America

The Growing Importance and Value Implications of Recreational Hunting Leases to Agricultural Land Investors in America

While there is an overabundance of white-tailed deer and other huntable species in many areas of the U.S., the quality of the trophy often appears to be as important a factor in land leasing rates as the absolute number of game animals in the region. In fact, there has been research conducted by McBryde and Henicke (1994) that relates the estimated market exchange price for buck deer relative to the Boone and Crocket world record book. Their research indicates the value (or access to land via lease, guided hunt, etc.) of a mature trophy deer ranges from $1400 to $6500 (in an animal unit based solely on the size of the animal’s antlers) (see Exhibit 4). Highly managed elk ranches are receiving $9500/hunter for trophy animals (Livestock Weekly, 1996) which is up con- siderably (171%) from $3500 / hunter from these same properties in 1992 (Wolfe, 1992).
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In a leveraged buyout, a company is acquired by a specialized investment firm

In a leveraged buyout, a company is acquired by a specialized investment firm

Private equity firms apply three sets of changes to the firms in which they invest, which we categorize as financial, governance, and operational engineering. Jensen (1989) and Kaplan (1989a, b) describe the financial and governance engineering changes associated with private equity. First, private equity firms pay careful attention to management incentives in their portfolio companies. They typically give the management team a large equity upside through stock and options—a practice that was unusual among public firms in the early 1980s (Jensen and Murphy, 1990). Kaplan (1989b) finds that management ownership percent- ages increase by a factor of four in going from public to private ownership. Private equity firms also require management to make a meaningful investment in the company, so that management not only has a significant upside, but a significant downside as well. Moreover, because the companies are private, management’s equity is illiquid—that is, management cannot sell its equity or exercise its options until the value is proved by an exit transaction. This illiquidity reduces manage- ment’s incentive to manipulate short-term performance.
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Activity-Based Valuation of Bank Holding Companies

Activity-Based Valuation of Bank Holding Companies

with high capital ratios pay lower FDIC insurance premiums, incur lower regulatory costs and risks, and have higher flexibility in operations and greater ability to grow. 13 Second, related to the previous point, high capital ratios may reflect accumulation of capital to facilitate value- creating growth. Capital in excess of regulatory requirements creates option value for banks by allowing them to forego having to raise external equity in the market (which would entail physical costs of underwriting, as well as adverse-selection announcement effects on the value of bank stock). Third, excess capital may proxy for market power or franchise value, since banks with greater market power may perceive that they have more to lose from regulatory intervention than other banks (e.g., Keeley, 1990), and consequently have a greater incentive to maintain excess capital. These effects suggest that the market-to-book ratio should be positively related to measures of capital adequacy. However, a possibly offsetting effect is related to the relationship between bank capital and bank risk. A high level of bank capital may indicate relatively risky operations or opaque assets (e.g., Calomiris and Wilson, 2004) which require more of a capital cushion. This effect might lead to a negative empirical relationship between capital adequacy and bank value. Moreover, higher capital could reflect the unavailability of positive net present value investments or inefficient management which fails to maximize the net benefits from leverage, which would also imply a negative relationship between capital adequacy and the market-to- book ratio. 14 Therefore, the empirical relationship between the market-to-book ratio and measures of capital adequacy is an open question. Still, the above arguments suggest that capital
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Do Investors Appreciate Information about Corporate Social Responsibility? Evidence from the Polish Equity Market.

Do Investors Appreciate Information about Corporate Social Responsibility? Evidence from the Polish Equity Market.

level by investors, there is significant information asymmetry between them. This phenomenon is primarily caused by two factors. The first one is a problem connected with the communication itself in the CSR area (Dabrowski, 2011). Although companies use different channels of this communication (Birth et al., 2008), the message is not specific enough (Ferns et al., 2008), which reduces its credibility. The other cause of substantial information asymmetry is a deficit of specialist CSR expertise among investors. Not only do companies possess private information on the actual level of their social involvement but they also have a better expertise on the related issues. On the other hand, investors have to rely on the information provided by companies, which is difficult to verify, evaluate and interpret because they do not have expertise to do it properly. Due to problems connected with the communication of corporate social responsibility on the part of investors and limited access to information combined with a lower level of knowledge on the part of investors, both companies and investors should be interested in the presence of the company in an ethical index. For companies this presence means a credible way to communicate their high CSR standards. Investors may treat the inclusion of the company in an ethical index or the exclusion from it as synthetic information derived from an independent institution. This can make information asymmetry less significant. The company included in the index applies respectively higher standards, while company excluded from it applies lower standards. From investors’ point of view, the change in the evaluation of corporate social responsibility may mean that the company is gaining or losing the opportunity to achieve the CSR related benefits, which will affect its future financial results. Therefore, this is an important information, which should influence companies’ share price.
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LEASE ACCOUNTING METHODOLOGY: A THEORETICAL REFLECTION

LEASE ACCOUNTING METHODOLOGY: A THEORETICAL REFLECTION

Lease financing possesses some advantages. The rental expense is deductible and may include amortization of land and the value of buildings already substantially written off. In effect, the firm can sell the property at its true value and receive cash for investment in other purposes. There is an increase in the ability of a firm to source for funds. For instance, if the firm owns a piece of property and wishes to borrow, it may not obtain loan above 60% of the property worth, but in lease financing, it could source virtually 100%. Lease financing may be cheaper depending on the period over which property covered by the lease is amortised and upon the rate of interest approved for the lease when compared with the rate of interest for borrowing. The cost of obsolescence is also an additional expense if the asset is owned. Restrictions in loan agreements may be avoided by the use of leasing; this may be short-lived in view of the fact that leasing involves debt obligation (Fubara and Dappa, 2000). Capital allowances are granted on the asset where finance leases are involved. In most countries, leasing plays a vital role in economic transformation. In Poland for example, leasing has been used in effecting privatization of government owned corporations. The State leases companies to Polish entrepreneurs with no upfront capital being paid (except the initial down payment), but with payments being made periodically. Over time, the entrepreneurs can accumulate profit and buy the company. 385 Polish enterprises were privatized through leasing as at the end of the first quarter of 1992 (Frydman and Rapaczynski, 1993: 54).
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